# Arbitrage (The Hedge)

**Disclaimer : Nothing I say or write should be construed as financial or any type of advice. My posts on sports betting are exclusively for illustrating probability and statistics concepts, using examples from the real world**

Arbitrage is just a way of making profits without risk, or in other words, it’s a way of making a profit regardless of the outcome. We call it - The Hedge

Casinos try their best not to allow arbitrage within the same site. As in, you cannot bet on the Niners and the Chiefs on the same site. They’ll kick you out of the site if you do it, it’s like card counting - it’s frowned upon

So, if you want to find arbitrage opportunities, you need to bet on the Niners on one site, and the Chiefs on the other site, but this would only work - if the odds work in your favor

**Let’s do a real world example based on the Superbowl this upcoming Sunday**

Moneyline (or Money) is a team winning or losing bet, and it is easier to explain. So, let’s just focus on Moneyline odds for this example

**Real World Case**

DraftKings Moneyline has the Niners as favorites by -120. It means if you bet 120, you’ll win 100, if the Niners win. Let’s assume I bet 120 on the Niners

Now, I need to hedge this 120 away, which means, I need to bet enough money on the Chiefs so that I get this 120 back - if the Niners end up losing

Since I cannot do this on DraftKings, I need to find FanDuel. Chiefs are underdogs there by +110 (under Money). It means, if I bet 100, I’ll get back 110, if the Chiefs win

Here is my hedge : I need to bet 109 on the Chiefs, to get back (109 x (110/100)) = 120

**Perfect. Now what ?**

If the Niners win, I get 100 from DraftKings as profit, but I’ll lose the 109 I hedged on FanDuel. So I’m down nine dollars

If the Chiefs win, I get the 120 from FanDuel, but I’ll lose the 120 I bet on the Niners from DraftKings. So, I won a grand total of zero dollars

**Those are my profit options : -9 or 0 **

You never thought casinos were a bunch of mathematical imbeciles, did you ? They know exactly what they are doing

Since -9 or 0 are my only profit options, arbitrage won’t work for the Superbowl this Sunday. But let’s do the math again, in this fictional example, instead of a +110 for Chiefs, let’s use +125. Everything else stays the same

**Real World Case - with Favorable Arbitrage Odds**

Now, to cover my 120 I bet on the Niners, I only need to bet 96, as 96 x (125/100) gives me 120. So, I have hedged my initial risk of losing 120 away

If the Niners win, I get 100 in gain. And since I only spent 96 to hedge my 120 away, I walk away with a profit of +4, from this arbitrage

If the Chiefs win, my bet of 96 on the Chiefs gives me 120 and that covers my 120 I lost on the Niners. So, I walk away with zero

**Now my profit options are : 0 or +4**

Arbitrage is very similar to options trading, taking advantage of spreads, or buying credit default swaps - in finance. It’s just helping you cover your downside risk

It’s extremely hard to find such arbitrage opportunities in sports betting, but once you find it, it’s just a multiplier effect from then on

In the second fictional example

As opposed to 120, if I bet 90 grand (50 on the Niners, and 40 as a hedge on the Chiefs), I’ll take home $ 1,667 if the Niners hoist that chiseled and gorgeous Lombardi on Sunday. If the Chiefs win, then I’d lose 0 - as I used them as the hedge

**Sources : **Tiffany,** **DraftKings and FanDuel